According to Savills latest Big Shed Briefing, total sales volumes in the UK warehouse market hit £7.7 billion in 2017, up from £6.1 billion in the previous year, accounting for 14% of all investment transactions, making it the best year on record for the industrial sector. This significant activity can be attributed to the ongoing popularity of the asset class as it continues to generate attractive returns underpinned by a consistently robust occupier market.
As a result, Savills prime yields for the sector have continued to move inwards with logistics and multi-let estates moving from 5% to 4.5% and 4.75% to 4.25% respectively over the past 12 months. In particular, multi-let assets have become increasingly attractive with investment volumes reaching £3.9 billion in 2017, another record figure for the sector. The potential to capture rental growth and drive returns through active asset management opportunities has seen investors swoop on multi-unit schemes with notable deals including Blackrock’s £51 million (3.98% NIY) purchase of Uplands Business Park in Walthamstow from Workman and UBS’s purchase of Stakehill Industrial Estate in Manchester from CEG for approximately £46 million (6% NIY).
In addition, Savills has seen a notable increase in overseas investment, which now accounts for 25% of the market, up from 22% in 2016. The competition for prime assets has become increasingly stiff as supply remains low and the number of investors pursuing a limited quantum of stock continues to rise. Consequently, money spent by UK institutions fell to 17.5% in 2017 from 20% in 2016 as overseas buyers took advantage of currency devaluation.
Tom Scott, director in the industrial investment team at Savills, comments: “Investor appetite for industrial ahead of other sectors, combined with capital growth and rising rents, has almost doubled industrial property’s market share against long term average volumes. With the sector remaining in favour amongst investors, this trend is expected to continue into 2018.”
The occupational market saw take-up in line with the long term average of 23.8 million sq ft (2.211 million sq m) last year, a 37% decrease on the record breaking figures of 2016. Savills notes that a key driver of this decline was the significant fall in take-up of built-to-suit units, which went from 18 million sq ft (1.672 million sq m) in 2016 to just 11 million sq ft (1.021 million sq m) in 2017. This was, in part, due to wider economic uncertainties, as well as the impromptu general election held in June last year.
Looking ahead however, Savills anticipates that a combination of transactions for existing stock alongside the completion of a number of build-to-suit units in Q1 2018 could see one of the best quarterly figures on record.
Richard Sullivan, national head of industrial & logistics at Savills, adds: “In just five years the long term average take-up of industrial stock has increased by more than 30% as the market continues to adapt, in particular to the growth of online retail. We have already started to see an uptick in occupier activity this quarter, with Lidl’s recent decision to open a 1 million sq ft distribution unit in Houghton Regis, Dunstable a case in point. With this in mind, we are confident that 2018 will be yet another strong year for the sector.”